But Microsoft’s $1.2 billion acquisition of Yammer is a little different. Not just because it underscores the importance of social in the enterprise and cements Yammer’s rapid rise to more than a billion dollars in value. Rather, it’s different because it signals the severity of the disruption occurring in enterprise software – disruption that will make it very difficult for incumbent vendors to hold on, and disruption that’s coming from entirely new places and in new ways.

Yammer began as an internal communication tool built specifically for employees at Geni, David Sacks’ preceding company. Explicitly modeled off of Twitter, it allowed people to post and respond to ideas and keep track of each other’s activities. Its thesis was unassuming at first: traditional enterprise communication sucks, and a very simple port of what we experience in our personal lives into the enterprise could address a massive problem. But when Yammer took the top prize at TC50 in 2008, it wasn’t uniformly praised, and in some cases was completely misunderstood. Was it a Twitter competitor? How useful would it really be? Many analysts, pundits, and enterprises initially balked, dismissing it simply as an enterprise “toy.”

But Yammer capitalized on its early traction, parlaying the service into a much broader social platform for workplace sharing and communicating, with the social enterprise space eventually exploding into a billion dollar market in just a couple of years. And these social “toys” quickly became a critical part of enterprise IT strategy – something that was not lost on Microsoft, nor on salesforce.com, which started building out Chatter. And the public markets have noticed as well, valuing Jive at $1.3 billion.

Who would have thought that something as simple as status messages shared between colleagues would evolve to become such an important strategic product for Microsoft and the enterprise? But this is exactly how most disruptive innovations start: seemingly innocuous and grossly misunderstood at the onset. And by the time the misconceptions are corrected, it’s too late for the legacy players. The toys are no longer toys; they’re contenders.

First they’re “toys,” then they’re solutions

Students of the Innovator’s Dilemma know that a new technology starts out being just “good enough.” Often, an early solution only serves a niche part of the market with limited requirements. This naturally shields it from the incumbents’ radar, but what starts out as a nascent product attacking an unprofitable or unattractive market segment can quickly mature into a disruptive solution that becomes more than adequate for a broader population.

What is remarkable is the predictability and consistency of the incumbents’ response to these new technologies.

The first sign that an important disruption is occurring is the incumbent writing off the new innovation as just a toy. It’s an age-old exercise, going back as far as Western Union’s failure to see the value in telephones, classically stating, “what use could this company make of an electrical toy?”

More recently, when the iPhone was introduced, Microsoft’s stance was that it “doesn’t appeal to business customers because it doesn’t have a keyboard which makes it not a very good email machine.” Of course, this turned out to be an unlucky predication, and the Redmond giant is now powering similarly consumerized devices for the enterprise sans keyboards. Fast-forward to today, and Larry Ellison is playing the same game with cloud ERP vendor Workday, dismissing it as frail and not ready for big customers.

I’m sure that Workday’s customers – Flextronics, Sallie Mae and Kimberly-Clark – would argue that point. And by all accounts, Workday is just getting started. You’d think Ellison would have learned the game by now, having intimately watched Salesforce grow from a small, burgeoning company to an $18 billion player in a little over a decade, attracting a number of large customers at Oracle’s expense.

And of course, when Salesforce was emerging, analysts and pundits claimed that it “doesn’t compare well at all with other large CRM packages like Siebel and PeopleSoft.” Which was true at the time. But customers don’t just buy what you’ve built today; they’re buying what you’ll have in the future.

It’s easy for incumbents – and everyone else – to forget how broadly and rapidly these solutions can evolve. Some of the most ‘powerful’ enterprise software on the market today started out as mere wedges, later transforming into meaningful and substantial platforms. Particularly for enterprises, it’s far better to evolve from something simple after learning about customer demands, than to pare down something insanely complex. And this is precisely the dilemma that traditional vendors are now facing.

Much of the enterprise’s existing technology is too stale and cumbersome to support the needs of workers today. And most legacy vendors simply can’t update their technology fast enough to compete in a world where business is changing overnight. To capitalize on this void, new solutions – built with fundamentally different models, architecture, and DNA – are rapidly emerging.

Attack of the “Toys”

“Yammer has gotten it right with its viral adoption model,” Steve Ballmer said of the acquisition. Yammer’s rise to prominence and purchase underscores a number of critically important trends disrupting software today. Its virality, simplicity, and freemium business model represent important levers for startups looking to take on much larger, far better resourced traditional players.

Today, nearly every internet-connected, employed individual is a potential user and buyer of enterprise tools. And by making these tools accessible to users with just a few clicks, enterprise software providers can reach markets at a scale and speed that were impossible in the client-server paradigm. Across mobile and web, new solutions will emerge that help workers connect and communicate better with their customers, analyze business data, gain new clients, manage their payroll and expenses, and more. Which is precisely why we’re seeing more investment in the enterprise software space than consumer internet, chasing hundreds of billions of dollars that are now up for grabs in enterprise IT spend.

At Box, we regularly talk with Global 2000 CIOs whose organizations now rely on dozens of applications that only cropped up in the past couple of years. This pace of adoption wasn’t possible in any previous technology era; the way software was both designed and implemented prohibited it. In the past, each new application required new infrastructure and new competencies, making organizations wary of new additions to the stack. It was far “easier” to buy your technology for a select few vendors. But that’s simply not possible today, given the heterogeneity of enterprise environments and diversity of new tools that users are bringing into work on their own. Consequently, today’s technology buyers have become more comfortable with the mix-and-match approach to enterprise IT, and now managing another mobile app or cloud solution is a far more incremental, trivial exercise.

And unsurprisingly, the cycles of disruption are accelerating. Given increasingly lower barriers to distribution, less conservative buyers, and rapidly changing business demands, we’re going to see unprecedented change in enterprise technology moving forward. Yammer produced a billion dollar outcome in less than four years. Following suit, we’re already seeing a new crop of companies initiate the next wave of disruption, like Base, Domo, CloudOn, GoodData, Asana, MixPanel, Zapier, PiCloud, DotCloud, intercom.io, PlanGrid (Box is an investor through /bin) and many others.

Initially, many will be written off by the legacy players as too simple to be important. But as they rise, we’ll see software categories created, remade and destroyed. Some of these apps, of course, will invariably go the way of Yammer, and be snapped up by incumbents. Others, however, will remain independent, evolve to the needs of large enterprises, and turn into leaders that define the next generation of enterprise software. And then they, too, will have to defend their positions against the next wave of “toys.”